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China's 5 year plan to refocus investment internally may gre

 
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PostPosted: Fri Jul 29, 2011 12:19 pm GMT    Post subject: China's 5 year plan to refocus investment internally may gre Reply with quote

Use this forum thread to discuss the following link.

Description: China's 5 year plan to refocus investment internally may greatly reduce demand for Treasuries, increase US mortgage rates
URL: http://globalpublicsquare.blogs.cnn.com/2011/07/27/read-china%E2%80%99s-lips/
Info/Broken?: http://www.bostonbubble.com/link_info.php?id=3622

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balor123



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PostPosted: Fri Jul 29, 2011 1:43 pm GMT    Post subject: Reply with quote

I think the blog is right about Chinese consumption of American treasuries. But more than half of our treasuries are held by the Fed so I don't expect interest rates to change all that much.
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PostPosted: Fri Jul 29, 2011 2:08 pm GMT    Post subject: Reply with quote

balor123 wrote:
I think the blog is right about Chinese consumption of American treasuries. But more than half of our treasuries are held by the Fed so I don't expect interest rates to change all that much.


They are? The amount I've seen for Fed holdings is ~$1.5T. China is in the same ballpark as that by itself with ~$1.2T. China plus Japan are way over that:

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/images/Top%20debt%20holders%205.20.jpg

China's purchases and holdings look very substantial to me. This doesn't directly address the implicit question, though, of how big does the player need to be to matter to interest rates? I suspect that being half the market is not a prerequisite, but I don't know where the threshold is. My hunch is that China is well above it.

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balor123



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PostPosted: Sat Jul 30, 2011 1:57 am GMT    Post subject: Reply with quote

Hmm I think you might be right. I was writing from memory but didn't have the data in front of me. How do we resolve those two charts? The Fed isn't listed in the first so I don't know how to figure out what the right % is. All the other numbers seem pretty close and the 4.5 trillion seems to be roughly the sum of all those so I'd guess 25%? I too don't know quantitatively how it will affect rates but I'm still correct that the Fed holds more than China and that means that we'd still need to take into account Fed actions. I'm not sure anyone really knows. I wonder what the other top holders are thinking.
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PostPosted: Wed Aug 03, 2011 12:56 pm GMT    Post subject: Reply with quote

Yes, of course The Fed's actions would certainly matter too. My point was just that China's holdings and purchases seem large enough that there will be a non-negligible impact on rates when they stop buying and perhaps even start selling. They probably don't need to be the largest holder of Treasuries for that to be true. I don't think it's possible to work out how it would affect things quantitatively with any great accuracy since ostensible Treasury prices are set on the margin by the most recent transactions (I think), and the act of China divesting could very well psychologically affect the price that other top holders are willing to pay/accept.

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